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December 30, 2008

Treasury invests $6 billion in GMAC

by Sam Savage

The U.S. Treasury said it purchased $5 billion in preferred GMAC stock and would lend General Motors Corp. $1 billion to invest in the company.

GM, struggling to survive a massive sales slump, owns 49 percent of GMAC and relies on the financial company to make loans to auto buyers and dealerships. Cerberus Capital Management, owning 51 percent, agreed to pump $250 million into GMAC, The Washington Post reported Tuesday.

The Treasury used money from the Troubled Asset Relief Fund. A Treasury official said the first half of the $700 billion program had not been distributed to financial firms. The deal, however, pushes the Treasury over the brink of released funds, forcing the department to ask Congress to release the second half of the $700 billion program, the Post said.

Although GM will invest in the lender, the Federal Reserve granted GMAC tentative permission to become a bank holding company on Dec. 24. That requires GM to cut its share in GMAC to 10 percent, The New York Times said.

Cerberus, similarly, must cut its company shares to 33 percent to trim its voting stake to under 15 percent.